The twelfth defendant was an “authorised person” for the purposes of the Financial Services and Markets Act 2000. As such, it was entitled by section 39(1) of the 2000 Act to authorise “appointed representatives” to carry on any of the generic types of regulated business identified by regulation 2 of the Financial Services and Markets Act 2000 (Appointed Representatives) Regulations 2001 which the twelfth defendant was itself authorised to conduct. Pursuant to section 39 of the 2000 Act the twelfth defendant entered into a contract with the first defendant, appointing the first defendant as its appointed representative to conduct certain defined relevant business. In particular, the contract prohibited the first defendant from giving advice to or arranging deals for retail clients. Consequently, by section 39(3) of the 2000 Act, the twelfth defendant was responsible for anything done or omitted by the first defendant in carrying on the business for which it had accepted responsibility. The first defendant then promoted and operated a series of property investment schemes in which the claimants invested. When those schemes failed, the claimants lost their money which they sought to recover from the twelfth defendant. The judge granted the claimants’ application for summary judgment, holding that, by appointing the first defendant as its appointed representative, the twelfth defendant had accepted responsibility for the actions of the first defendant in promoting and operating the investment schemes.
On appeal by the twelfth defendant—
Held, appeal dismissed (Lewison LJ dubitante). The expressions “business of a prescribed description” and “the whole or part of that business” in section 39(1) of the Financial Services and Markets Act 2000 had to be interpreted having regard to the purposes of that section, which included providing investors who dealt with appointed representatives with a remedy against the principal whose grant of permission to carry on investment business had enabled the appointed representative to operate in the financial services sector. Since “business of a prescribed description” referred to business which was prescribed in regulation 2 of the Financial Services and Markets Act 2000 (Appointed Representatives) Regulations 2001, which referred to certain kinds of activity, it followed that the “description” of the business in section 39(1)(a) referred to the activity in question, in the present case “Advising on investments” and “Arranging deals in investments”. Those generic descriptions were not defined by reference to the classification of the clients to whom advice might be given or for whom deals might be arranged, nor did they distinguish, as descriptions of activities, between giving advice to or arranging deals for professional clients and eligible counterparties on the one hand and retail clients on the other. To interpret “part of that business” in section 39(1)(b) as enabling a principal to grant permission, and to accept responsibility, limited to providing advice to or arranging deals for professional clients and eligible counterparties only would be contrary to the purpose of investor protection which underlay section 39. An interpretation of section 39 which placed responsibility on the principal except in cases where there was a clear demarcation between different parts of its business, and the representative was appointed only in respect of a clearly demarcated part of that business, was in accordance with the statutory objectives. Accordingly, in the present case, the stipulation in the contract that the first defendant should deal only with professional clients and eligible counterparties operated as a contractual term as between the first and twelfth defendants, but did not affect the scope of the permission given by the twelfth defendant, or the responsibility which it accepted, for the purposes of section 39 of the 2000 Act (paras 85–86, 91–96, 105).
Simon Howarth KC and Lucile Taylor (instructed by DWF Law LLP) for the twelfth defendant.
Hugh Sims KC and Jay Jagasia (instructed by Acuity Law Ltd) for the claimants.